The relation of nation and states in a federal system - Negative implications of the commerce clause

Learning Outcomes

After reading this article, you will be able to explain how the Commerce Clause limits state power in the federal system, identify when state laws violate the dormant (negative) Commerce Clause, distinguish between permissible and impermissible state regulation of interstate commerce, and apply the market participant exception. You will be equipped to answer MBE questions on federalism and the negative implications of the Commerce Clause.

MBE Syllabus

For the MBE, you are required to understand the constitutional relationship between the federal government and the states, especially as it relates to the Commerce Clause. This article focuses your revision on:

• The scope of Congress’s commerce power and its limits.
• The dormant (negative) Commerce Clause and its effect on state regulation.
• The distinction between state regulation and state participation in the market.
• Exceptions and defenses to dormant Commerce Clause challenges.
• The test for discriminatory and non-discriminatory state laws affecting interstate commerce.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is most likely to violate the dormant Commerce Clause?
   1. A state law requiring all milk sold in the state to be pasteurized, regardless of origin.
   2. A state law imposing a higher tax on out-of-state wine than in-state wine.
   3. A state law banning the use of plastic bags by all retailers.
   4. A state law subsidizing only in-state farmers.
2. The market participant exception allows a state to:
   1. Regulate interstate commerce in any way it chooses.
   2. Favor in-state businesses when acting as a buyer or seller.
   3. Tax out-of-state goods at a higher rate than in-state goods.
   4. Prohibit all imports from other states.
3. If Congress expressly authorizes a state to discriminate against out-of-state commerce, the state law:
   1. Is still subject to dormant Commerce Clause scrutiny.
   2. Is valid even if it would otherwise violate the dormant Commerce Clause.
   3. Is valid only if it is the least restrictive means.
   4. Is always invalid.

Introduction

The U.S. Constitution creates a federal system in which both the federal government and the states have authority to regulate. The Commerce Clause gives Congress broad power to regulate interstate commerce, but it also has a “negative” or “dormant” aspect that limits state power even when Congress has not acted. Understanding the negative implications of the Commerce Clause is essential for analyzing federalism questions on the MBE.

Key Term: Commerce Clause The constitutional provision (Art. I, §8, cl. 3) granting Congress the power to regulate commerce among the states, with foreign nations, and with Indian tribes.

The Dormant Commerce Clause

The dormant (or negative) Commerce Clause refers to the principle that state laws may not discriminate against or unduly burden interstate commerce, even when Congress is silent.

Key Term: Dormant Commerce Clause The doctrine that state laws are unconstitutional if they discriminate against or place an undue burden on interstate commerce, unless Congress has authorized the discrimination.

Discriminatory State Laws

A state law is discriminatory if it treats out-of-state economic interests less favorably than in-state interests. Discriminatory laws are almost always invalid unless the state can show:

• The law serves a legitimate local purpose (such as health or safety), and
• No reasonable non-discriminatory alternative exists.

Examples of Discriminatory Laws

• Banning import of out-of-state waste while allowing in-state waste disposal.
• Imposing higher taxes on out-of-state goods than in-state goods.
• Requiring in-state processing of locally produced goods before export.

Non-Discriminatory State Laws and the Balancing Test

If a state law is non-discriminatory (applies equally to in-state and out-of-state interests), it will be upheld unless the burden on interstate commerce is clearly excessive compared to the local benefits.

Key Term: Balancing Test (Pike Test) The standard used to evaluate non-discriminatory state laws: a law is invalid if the burden on interstate commerce is clearly excessive in relation to the putative local benefits.

Market Participant Exception

A state acting as a market participant (buying, selling, or producing goods or services) may favor its own citizens without violating the dormant Commerce Clause. However, this exception does not allow the state to impose downstream restrictions on commerce after the initial transaction.

Key Term: Market Participant Exception The principle that a state may favor its own citizens when acting as a buyer or seller in the market, rather than as a regulator.

Congressional Authorization

If Congress expressly authorizes a state to discriminate against interstate commerce, the state law is valid even if it would otherwise violate the dormant Commerce Clause.

Key Term: Congressional Authorization When Congress explicitly permits states to regulate or discriminate in a way that would otherwise violate the dormant Commerce Clause, making such state laws immune from dormant Commerce Clause challenge.

Worked Example 1.1

A state enacts a law requiring all milk sold in the state to be processed and bottled within the state. An out-of-state dairy challenges the law.

Answer: The law is discriminatory because it favors in-state processors over out-of-state ones. Unless the state can show no reasonable non-discriminatory alternative exists to achieve a legitimate local purpose, the law is invalid under the dormant Commerce Clause.

Worked Example 1.2

A state-owned cement plant sells cement only to in-state buyers during a shortage, refusing to sell to out-of-state buyers. Is this allowed?

Answer: Yes. The state is acting as a market participant, not as a regulator. The market participant exception allows the state to favor in-state buyers when selling its own goods.

Worked Example 1.3

Congress passes a law stating, “States may prohibit the export of groundwater to other states.” A state then bans all groundwater exports. Is this constitutional?

Answer: Yes. Because Congress has expressly authorized the discrimination, the state law is valid even though it would otherwise violate the dormant Commerce Clause.

Exam Warning

The dormant Commerce Clause only applies when Congress has not acted. If Congress has authorized the state law, dormant Commerce Clause analysis does not apply.

Revision Tip

Always ask: Is the state acting as a regulator or a market participant? Only regulatory actions are subject to dormant Commerce Clause limits.

Key Point Checklist

This article has covered the following key knowledge points:

• The Commerce Clause gives Congress broad power to regulate interstate commerce.
• The dormant Commerce Clause prohibits states from discriminating against or unduly burdening interstate commerce.
• Discriminatory state laws are almost always invalid unless no reasonable non-discriminatory alternative exists.
• Non-discriminatory state laws are upheld unless the burden on interstate commerce clearly outweighs local benefits.
• The market participant exception allows states to favor in-state interests when acting as buyers or sellers.
• Congressional authorization immunizes state laws from dormant Commerce Clause challenge.

Key Terms and Concepts

• Commerce Clause
• Dormant Commerce Clause
• Balancing Test (Pike Test)
• Market Participant Exception
• Congressional Authorization